A revealed preference approach to approximate utility maximisation

Paweł Dziewulski

Journal of Economic Theory, 2025, vol. 228, issue C

Abstract: We develop a revealed preference method for studying preferences of individuals whose choices may be inconsistent with utility maximisation. We show that acyclicity of the strict revealed preference is necessary and sufficient for the data to be rationalisable with approximate utility maximisation. In this model, an alternative is selected from a menu only if its utility is not significantly lower than that of any other available option. This allows us to test for consumer behaviour that is subject to imprecision, vagueness of judgement, or incommensurability, among others. Our results require minimal assumptions on the empirical framework, making them applicable to studies of choices over consumption bundles, state-contingent consumption, and lotteries.

Keywords: Revealed preference; Strict preference; Acyclicity; Approximate utility maximisation; Imperfect discrimination; Recoverability (search for similar items in EconPapers)
JEL-codes: D11 D81 D91 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:228:y:2025:i:c:s0022053125001097

DOI: 10.1016/j.jet.2025.106063

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